Currently, Founder & CEO of myFrontdoor.com. Previously, I've been involved in technology since 1993 as an investment banker and research analyst and met with hundreds of companies, from start-ups to the large cap companies. I have been contributing to Forbes.com since August 2009.

Three Trends Underlying Apple's iPhone Market Share Surge

iPhone’s market share in the US increased to 48.1%, and surpassed Google‘s Android 46.7% in the twelve weeks ending October 28, 2012 according to a report released by Kantar Worldwide. There are three important underlying themes.

First, there was pent-up demand for the iPhone 5, which most likely affected less-impressive Q2 2012 and Q3 2012 market share results. Apple released the iPhone 5 at the end of September, and experienced supply constraints for several weeks, going into the earnings release in the end of October. Even with supply constraints, Apple surged past Android to take the top billing in the US for the past twelve weeks, with only a handful of weeks without supply constraints.

The Samsung Galaxy 3, which has also proved to be a very popular smartphone, was released in May. So, while Samsung benefited from its new product introduction over the summer, Apple will benefit from its iPhone 5 release in this period. I have written previously that smartphone market share numbers can be distorted period-by-period due to the timing of product introductions, and be influenced in any period by carrier subsidies and promotions. For example, carriers can promote different smartphones on their websites. The iPhone is the fifth and fourth smartphone displayed for Verizon and AT&T, respectively. And, if one goes into a carrier store, chances are that the phones of which they have the greatest inventory are the ones a customer will hear about first. It takes a determined customer to wait for an iPhone, and apparently they did. This is what the Kantar numbers have borne out for the short term.

The real test will be the Q4 2012 market share numbers. Q4 is different from other quarters because manufacturers introduced a bevy of new products at the end of August for sale by the holiday season. The fourth quarter will be a horse race among the newest products on the market and the largest number of consumers buying them. The momentum, currently, appears to be with Apple.

Second, Apple has strong brand loyalty. And brand loyalty means that current owners are sticking with Apple while new buyers are being converted from other brands. The Kantar report notes 92% of iPhone owners intend to purchase another iPhone. And of the iPhones sold during this period, 62% of iPhones were purchased by current iPhone owners and 38% were converted from other brands.

The brand loyalty will carry through to future iPhone sales. We can assume that almost all of the installed base will replace their phones every 2 years, plus the conversion of other brands to Apple. Android is also participating in the conversion, with the losers being Research in Motion and Nokia. Across the board in the Kantar data, Research in Motion accounted for the largest market share losses. And in most of the markets followed by Kantar, Apple and Android control roughly 80% of the market share, meaning that there is only 20% left for others to lose before Apple and Android do have to cannibalize each other. And Android loyalty is not quite as strong. Only 47% of Android owners plan to replace their phone with another Android, according to a study by Piper Jaffray. As it becomes strictly Apple versus Android, strong brand will matter most.

Third, Apple is building loyalty among institutions in addition to consumers. In the enterprise market, IDC reports that Apple and Android, combined, will sell more phones into the enterprise market than Research in Motion, for the first this year. And, the split between Apple and Android is interesting. Of the phones that are purchased by employees, 87M are Android and 37M are Apple. But, of the phones supplied by the employer, 15M are Android and 33M are Apple. Corporate IT departments endorse Apple because of its tight security, the productivity apps already available on the iPhone and the ability to customize proprietary apps for the iPhone. As a result, IDC forecasts that the iPhone will become the top-ranking phone purchased by corporations for their employees, with 69M shipments into the enterprise by 2016.

Conclusion. Kantar’s Dominic Sunnebo, global consumer insight director, predicts that Apple iPhone’s momentum is just beginning: “The last time we saw iOS overtake Android in the US was when the iPhone 4S was released and Apple managed to retain its lead for three consecutive periods. This time we predict that Apple will beat its previous high of 49.3% and achieve its highest ever share of the US smartphone market within the next two periods.”

Apple offers investors growing market share in a growing market, with the highest margins in the industry. Yet the stock currently trades at a discount to the overall market. Part of this drag is due to the fear that Apple has lost its momentum. Perhaps the momentum was just waiting for the iPhone 5 to be released.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.